Amendment 3 prohibited the legislature from levying, authorizing or permitting any state or local tax upon payroll or earned personal income.[1]

Amendment 3 was not designed to apply to any tax in effect on January 1, 2011. The only income tax in effect on that date was on certain stock dividend and interest income. Therefore, the amendment did not prohibit a personal income tax on certain stock dividend and interest income.[2]

Election results

Text of measure

Ballot title

Shall Article II, Section 28 of the Constitution of Tennessee be amended by adding the following sentence at the end of the final substantive paragraph within the section:

Notwithstanding the authority to tax privileges or any other authority set forth in this Constitution, the Legislature shall not levy, authorize or otherwise permit any state or local tax upon payroll or earned personal income or any state or local tax measured by payroll or earned personal income; however, nothing contained herein shall be construed as prohibiting any tax in effect on January 1, 2011, or adjustment of the rate of such tax.
□ Yes
□ No[5]

”

Constitutional changes

Notwithstanding the authority to tax privileges or any other authority set forth in this Constitution, the Legislature shall not levy, authorize or otherwise permit any state or local tax upon payroll or earned personal income or any state or local tax measured by payroll or earned personal income; however, nothing contained herein shall be construed as prohibiting any tax in effect on January 1, 2011, or adjustment of the rate of such tax.[5]

Fiscal note

The fiscal note developed by the Tennessee General Assembly Fiscal Review Committee was as follows:[6]

“

ESTIMATED FISCAL IMPACT:

Increase Local Expenditures – Up to $10,000/FY14-15*

Assumptions:

• The proposed constitutional amendment received the required constitutional majority vote with passage of Senate Joint Resolution 221 by the 107th General Assembly. The required publication was made on May 6, 2012.

• Following first passage by two successive General Assemblies, and pursuant to Article XI, Section 3 of the Tennessee Constitution, it shall be the duty of the General Assembly to submit such proposed amendment to the people at the next general election in which a Governor is to be chosen.

• Tenn. Code Ann. § 2-5-211(b) requires the county election commission to publish a sample ballot in a newspaper of general circulation or mail sample ballots to registered voters at least five days prior to early voting.

• The requirement to add this constitutional amendment to the 2014 general election ballot will increase the size of the sample ballot.

• Given the size of the sample ballot will increase, and because publishing costs are generally based on the number of words published or the number of document pages printed, local government expenditures are expected to increase.

• Based on information provided by the Secretary of State, the total statewide increase in local government expenditures is reasonably estimated as an amount up to $10,000 in FY14-15.[5]

”

Background

At the time of the amendment's approval, there was no general state income tax in Tennessee. There was, however, an income tax on dividends from stocks and interest on certain bonds. This income tax was known as the “Hall Income Tax.” The tax rate was 6% in 2014. Without Amendment 3, Tennessee could have constitutionally enacted an income tax on wages, salaries and so on. Amendment 3 amended the Tennessee Constitution to prohibit the possibility of an income tax in the future.[7]

Support

The campaign in support of the amendment was led by Yes on 3 Tennessee.[8]

The measure was supported in the legislature by Sen. Brian Kelsey (R-31).

Former officials

Organizations

Arguments

Travis H. Brown, a columnist for Forbes, called the amendment "absolutely critical." The following is an excerpt from his article on Amendment 3:

“

... By prohibiting the future implementation of an income tax, Tennessee is lighting a bright neon “Open” sign that will attract families and businesses alike...

Anyone with an interest in data should quickly see why Tennessee must set its no-income-tax status in stone. As my Wealth of States coauthor, the esteemed economist Dr. Art Laffer, often says, “Taxation doesn’t generate revenue, it moves people,” [sic] Between 1992 and 2011, the state gained $10.55 billion in net adjusted gross income, with the lion’s share coming in from such high-tax states as California, Michigan, and Illinois. The nonpartisan Tax Foundation ranks Tennessee as 15th-best in the nation on its 2014 State Business Tax Climate Index. And it’s not just small to mid-sized businesses that are taking note of Tennessee’s sunny tax climate; global players like Amazon have opened giant warehouses in the state.

Tennessee is a significant player in the Heartland tax revolution, creating real opportunities for working families while Washington, D.C., sputters and stagnates on tax reform. Heartland states understand the need to compete, both on a national and international stage. A yes vote on Amendment 3 sends the clearest of messages: In order to stay competitive, Tennessee must eliminate the possibility of an income tax, today and tomorrow...[5]

Former officials

Organizations

Arguments

John G. Stewart, former assistant general manager and vice president of the Tennessee Valley Authority, argued the amendment would actually increase taxes for the "average working Tennessean." He elaborated:

“

No, Amendment 3 is related to all the other taxes that are permitted by the amendment and that surely would be raised in future years, such as what already is the nation’s highest sales tax, the tax on groceries, business taxes, fees and even the possibility of a statewide property tax. That’s what Amendment 3 is really all about.

But to divert voters from this shocking realization, the advocates have concocted all sorts of other arguments that are confusing and wrong. One of their favorites is that an income tax will drive away businesses from locating in Tennessee or from expanding existing businesses. We are told that “businesses love to locate in Tennessee because Tennessee has no income tax.” Plus, “states that don’t have an income tax are doing much better economically than states that do.” How many times have you heard these claims?

Well, a personal observation seems timely. For five years, I was in charge of TVA’s economic and community development program. We met with dozens and dozens of prospective employers during these years. I cannot recall a single instance — not one — when the prospective employer showed any interest in the issue of income taxes in Tennessee. But they all were vitally interested in the availability of trained, skilled and experienced workers and in the state’s capacity to train workers — at four-year colleges, community colleges and technical institutes. The absence of skilled workers, not the presence or lack of a state income tax, often was the deal breaker.

Economic analysis supports what I encountered personally. The Center on Budget and Policy Priorities has determined that differences in tax levels among states have little or no effect on whether and where people and businesses move. Movement for most people is for employment opportunities, less expensive housing and, for many retirees, a warmer, mostly snow-free climate. If deep tax cuts result in significant deterioration in education, public safety, parks, roads and other critical services and infrastructure, these states will be less, not more, desirable places for businesses and individuals...

There’s more. Whether looking at income levels, unemployment rates or economic output per person, states with “high rate” income taxes have economies that equal or surpass those in states lacking an income tax, as reported by the Institute of Taxation and Economic Policy.

Yes, pity the poor voter trying to make sense out of all this. But one point should be clear to everyone: Permanently barring even the consideration of an income tax, regardless of circumstances, years in the future will force the increase of other taxes not banned by Amendment 3.

One other thing is certain: The average working Tennessean will, once again, be forced to pick up the largest portion of this enhanced tax burden. Count on it.[5]

Tennesseans for Fair Taxation’s Jim Von Bramer called the amendment “irresponsible.” He argued, “Permanently blocking an income tax lets the wealthiest Tennesseans walk away from paying a fair share of state and local taxes forever while the rest of us pay much more of our income on food taxes and the basic necessities we buy from our local retailers. Our state budget gap will likely only grow as the federal budget shrinks. We are headed into a dark place, and now the state Senate says we should throw away our flashlight.”[14]

Dr. John Gnuschke, director of the University of Memphis Bureau of Business and Economic Research, said, "It will limit future options for state legislative leaders and that is not a good idea in a state that struggles to maintain a balanced budget and still provide high quality public services. The passage would increase the burden on sales and property taxes, the principal sources of revenue for state and local areas. States that have income taxes have revenues that grow as the economy grows and allow government to respond to the demand for public services. Practical limitations on property and sales tax rates are already being faced in many areas of the state."[9]

Campaign contributions

As of October 27, 2014, Citizens for Fiscal Sanity had received $23,064 in contributions.[15]Citizens for Fiscal Sanity is Vote No on 3's referendum campaign committee.